Herschel was born in Hanover, Electorate of Hanover, one of ten children of Isaak and Anna Ilse, née Moritzen, Herschel. His father was of Jewish descent and an oboist in the Hannover Military Band. In 1755 the Hannoverian Guards regiment, in whose band Wilhelm and his brother Jakob were engaged as oboists, was ordered to England. At the time the crowns of Great Britain and Hannover were united under George II. This brief visit made an impression and the next year the brothers resigned from the Guards band and moved to London. Wilhelm, nineteen years old at this time, was a quick student of the English language. In England he went by the English rendition of his name, Frederick William Herschel. He played the cello and harpsichord in addition to the oboe and later the organ. He composed numerous musical works, including 24 symphonies and many concertos, as well as some church music. Apart from a few oboe concertos, his music is largely forgotten today.

Herschel moved to Sunderland in 1761 when Charles Avison immediately engaged him as first violin and soloist for his Newcastle orchestra, where he played for one season. In ‘Sunderland in the County of Durham April 20, 1761’ he wrote his symphony no. 8 in C minor. He was head of the Durham Militia band 1760–61 and visited the home of Sir Ralph Milbanke at Halnaby Hall in 1760, where he wrote two symphonies, as well as giving performances himself.

After Newcastle he moved to Leeds and Halifax where he was the very first organist at St John the Baptist church. He became organist of the Octagon Chapel, Bath, a fashionable chapel in a well known Spa, in which town he was also Director of Public Concerts. He was appointed as the organist in 1766 and gave his introductory concert on 1 January 1767. As the organ was still incomplete he showed off his versatility by performing his own compositions including a violin concerto, an oboe concerto and a harpsichord sonata. The organ was completed in October 1767. His sister Caroline came to England in 1772 and lived with him there in New King Street. His brothers Dietrich, Alexander and Jakob (1734 – 1792) also appeared as musicians of Bath. In 1780, Herschel was appointed director of the Bath orchestra, with his sister often appearing as soprano soloist.

Herschel's music led him to an interest in mathematics and lenses. His interest in astronomy grew stronger after 1773 and he made the acquaintance of the English Astronomer Royal Nevil Maskelyne. He started building his own reflecting telescopes and would spend up to 16 hours a day grinding and polishing the speculum metal primary mirrors.

In the spring of 1781, while doing a survey of stars down to eight magnitude with a 6 inch diameter (150 mm), 7 foot long (2.1 m) Newtonian telescope in the back garden of his house in New King Street, Bath, William Herschel noticed an object that seemed to have a non-stellar disk shape. Herschel originally thought it was a comet or a star. He made many more observations of it, and afterwards Russian Academician Anders Lexell computed the orbit and found it to be probably planetary. Herschel determined in agreement that it must be a planet beyond the orbit of Saturn. He called the new planet the 'Georgian star' (Georgium sidus) after King George III, which also brought him favour; the name didn't stick, however: in France, where reference to the British king was to be avoided if possible, the planet was known as 'Herschel' until the name 'Uranus' was universally adopted. The same year, Herschel was awarded the Copley Medal and elected a Fellow of the Royal Society. In 1782, he was appointed "The King’s Astronomer", and he and his sister subsequently moved to Datchet (then in Buckinghamshire but now in Berkshire) on 1 August 1782. He continued his work as a telescope maker, selling a number of them to other astronomers.

In 1783 he gave Caroline a telescope, and she began to make astronomical discoveries in her own right, particularly comets. She discovered eight comets, three nebulae and, at her brother's suggestion, updated and corrected Flamsteed's work detailing the position of stars. This was published as the British Catalogue of Stars. She was honored by the Royal Astronomical Society for this work. Caroline also continued to serve as his assistant, often taking notes while he observed at the telescope. In June 1785, owing to damp conditions, he and Caroline moved to Clay Hall in Old Windsor. In 1786, the Herschels moved to a new residence on Windsor Road in Slough. He lived the rest of his life in this residence, which came to be known as Observatory House. It is no longer standing.

On 7 May 1788, he married the widow Mary Pitt (née Baldwin) at St Laurence's Church, Upton in Slough. His sister Caroline then moved to separate lodgings, but continued to work as his assistant.

During the course of his career, he constructed more than four hundred telescopes. The largest and most famous of these was a reflecting telescope with a 49¹⁄₂ inch diameter (1.26 m) primary mirror and a 40 foot (12 m) focal length. Because of the poor reflectivity of the speculum mirrors of that day, Herschel eliminated the small diagonal mirror of a standard newtonian reflector from his design and tilted his primary mirror so he could view the formed image directly. This design has come to be called the Herschelian telescope. On 28 August 1789, his first night of observation using this instrument, he discovered a new moon of Saturn. A second moon followed within the first month of observation. The "40 foot telescope" proved very cumbersome, however, and most of his observations were done with a smaller 18.5 inch (47 cm) 20 foot focal length (6.1 m) reflector. Herschel discovered that unfilled telescope apertures can be used to obtain high angular resolution, something which became the essential basis for interferometric imaging in astronomy (in particular Aperture Masking Interferometry and hypertelescopes).

In his later career, Herschel discovered two moons of Saturn, Mimas and Enceladus; as well as two moons of Uranus, Titania and Oberon. He did not give these moons their names; rather, they were named by his son John in 1847 and 1852, respectively, well after his death. Recently, some evidence has been cited by Dr. Stuart Eves that Herschel might have discovered rings around Uranus.

He worked on creating an extensive catalogue of nebulae. At that time, nebula was a general name for any extended astronomical object, including galaxies beyond the Milky Way until galaxies were discovered by Edwin Hubble. He continued to work on double stars, and was the first to discover that most double stars are not mere optical doubles as had been supposed previously, but are true binary stars, thus providing the first evidence that Newton's laws of gravitation apply outside the solar system. He also measured the axial tilt of the planet Mars and discovered that the martian ice caps changed size with the planet's seasons.

From studying the proper motion of stars, he was the first to realize that the solar system is moving through space, and he determined the approximate direction of that movement. He also studied the structure of the Milky Way and concluded that it was in the shape of a disk.

He also coined the word "asteroid", meaning star-like (from the Greek asteroeides, aster "star" + -eidos "form, shape"), in 1802 (shortly after Olbers discovered the second minor planet, 2 Pallas, in late March of the same year), to describe the star-like appearance of the small moons of the giant planets and of the minor planets; the planets all show discs, by comparison. However, it was not until the 1850s that 'asteroid' became a standard term for describing certain minor planets.

As part of his attempts to determine if there was a link between solar activity and the terrestrial climate, Herschel also collected records of the price of wheat, as direct meteorological measurements were not available for a sufficient period. He theorised that the price of wheat would be linked to the harvest and hence to the weather over the year. This attempt was unsuccessful due to the lack of previous solar observations against which to compare the wheat prices, but similar techniques were used later with success.

Despite his numerous important scientific discoveries, Herschel was not averse to wild speculation. In particular, he believed every planet was inhabited, even the Sun: he believed that the Sun had a cool, solid surface protected from its hot atmosphere by an opaque layer of cloud, and that a race of beings adapted to their strange environment lived there and had enormous heads. He believed the creatures' heads must be exceptionally large because his calculations showed that under those conditions a normal sized head would effectively explode. The original belief of life forms inhabiting the Sun came from the sight and movement of sunspots on the surface of the Sun.

On 11 February 1800, Herschel was testing filters for the sun so he could observe sun spots. When using a red filter he found there was a lot of heat produced. Herschel discovered infrared radiation by passing sunlight through a prism and holding a thermometer just beyond the red end of the visible spectrum. This thermometer was meant to be a control to measure the ambient air temperature in the room. He was shocked when it showed a higher temperature than the visible spectrum. Further experimentation led to Herschel's conclusion that there must be an invisible form of light beyond the visible spectrum.

Herschel used a microscope to establish that coral had the characteristic thin cell walls of an animal, instead of it being a plant, as many believed.

William Herschel and Mary had one child, John, born at Observatory House on 7 March 1792. In 1816, William was made a Knight of the Royal Guelphic Order by the Prince Regent entitling him to the prefix 'Sir'. He helped to found the Astronomical Society of London in 1820, which in 1831 received a royal charter and became the Royal Astronomical Society. In 1813, he was elected a foreign member of the Royal Swedish Academy of Sciences

Herschel died at Observatory House, Windsor Road, Slough, and is buried at nearby St Laurence's Church, Upton. He died in his 84th year, which is the same number of years Uranus takes to orbit the Sun. His son John Herschel also became a famous astronomer. One of William's brothers, Alexander Herschel, moved permanently to England, near Caroline and John. His sister Caroline returned to Hanover, Germany after the death of her brother. She died on 9 January 1848.

His house at 19 New King Street in Bath, Somerset, where he made many telescopes and first observed Uranus, is now home to the Herschel Museum of Astronomy.